EUR 850.00 For Business Accounts Only

Morningstar | Unclear direction after demerger

After the demerger, Wharf mostly holds assets in China, with the most important being the five mixed-use IFS complexes. The company is in the midst of a large-scale expansion in China, leveraging its retail expertise to build a series of commercial projects focused on Tier 2 cities. Given the company’s pedigree as an astute retail mall operator, Wharf’s growth after the demerger will hinge on the performance of its IFS complex in Chengdu, Wuxi, Suzhou, Changsha, and Chongqing. In these cities, there is still a shortage of well-designed and professionally managed commercial properties. Furthermore, retail trends are transitioning from department stores to specialty stores, providing opportunities for entrants like Wharf to establish landmark projects, backed by its financial resources, retail expertise, and brand relationships.Wharf's property development business in China recovered since 2014 on the back of an improving residential market in China. The average selling price for contracted sales improved in 2015 and 2016, which lifted earnings in 2017. But earnings growth for the segment will slow in 2018 and beyond as contract sales cooled in 2017. Wharf also responded by shifting capital expenditures to investment properties. We expect the company to remain austere in land banking activities, while increasingly leveraging local partners to manage risks in residential trading.While the demerger has deprived Wharf the stable recurrent income from its mature Hong Kong assets, balance sheet strength is not an issue in the near term given its ample cash. However, due to the lack of suitable investment opportunities, the company now holds a portfolio of equity investments in Hong Kong property developers. Given the respective domains of related corporate entities (Wheelock and Wharf REIC), putting the cash to use may be difficult. Further investments in the city in logistics or hotels are also unlikely, given the limited size of the logistics sector and the sky-high capital value across the property sector.